And some of the most famous names in the American stock market heard the pitch The Capital Group, T. 

But it was happening to everyone's trades millions of times a day. The United States stock market, the most iconic market in global capitalism is rigged.

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The best analogy I think is that your family wants to go to a concert. You go onto StubHub, there's four tickets all next to each other for 20 bucks each.

You put in an order to buy four tickets, 20 bucks each and it says, "You've bought two tickets at 20 bucks each. What'd you think the problem was? I had no idea. I couldn't get answers. The same thing that I was experiencing as a trader, one of the most sophisticated hedge funds in the world was also having the same problem. Then the light bulb goes off. You say, "Holy cow, this is, this is a huge problem. You were determined to get to the bottom of it? It didn't feel right that people who are investing on behalf of pension funds and retirement funds are getting bait and switched every single day in the market.

Katsuyama suspected that the problem had something to do with plumbing, the way the trades were routed through fiber optic cables from his trading desk in lower Manhattan to the 13 public exchanges in northern New Jersey.

But no one would tell him exactly what happened to his orders once he hit the buy or sell button. So he put together a team of technical experts, traders and most importantly, an Irish telecom guy named Ronan Ryan, who was an expert on high-speed fiber optic networks.

I knew nothing about trading until my first day at RBC when I sat in that three hour meeting on algorithms. I called my wife afterwards. And I'm like, "Holy crap, I have no idea what they just said. He knew what they were building and he knew about the colossal amounts of money they were prepared to spend.

He told Brad about a company called Spread Networks that had laid a high-speed fiber optic cable from the futures market in Chicago to the exchanges in New Jersey. From Brad Katsuyama's point of view, when he heard they were willing to spend that kind of money for milliseconds it told him the sums involved were vast. That was one of the first questions he said he had.

He says, "All right, I'm getting ripped off. Everybody's getting ripped off. But what does it add up to? Ronan Ryan also knew where all the cable was buried and had detailed maps of the fastest routes from the financial district in lower Manhattan to the various stock exchanges in New Jersey, all calculated down to the millisecond. So I would sit there, roll out maps, and roll out this data center as a box and a line going through it.

And they had no idea what I was on about. And then I'd be like, "Hey are you guys aware of where these data centers are located? Of course you're arriving there at different time intervals. Brad realizes, "Oh my God, that's how I'm being front-runned. I'm being front-runned because my signal gets to the BATS Exchange first and they can beat me to all the, all the other exchanges.

But it was happening to everyone's trades millions of times a day. You make it sound like a skim. What else would you call it? That's the thing that's so shocking about all this. Well you used the word front running.

This form of front running is legal. It's legalized front running. It's crazy that it's legal for some people to get advance news on prices and what investors are doing. Ronan knew the only way to beat the high-frequency traders was to take away their milliseconds advantage that allowed them to sniff out slower trades and beat them to the exchange. He had an idea how to do it. And he said, "You're probably better off trying to go slower," which means send the order to the exchange located the farthest away first and send the order to the one that's located to you last.

So stagger when you send them out with the goal of arriving at all places, as close to the same time as possible. Katsuyama and his team developed software that did just that, allowing the orders of Royal Bank of Canada's customers to reach all of the exchanges at the same time, cutting the high-frequency traders out of the equation.

And essentially our fill rates went to percent. We couldn't believe it when, when we actually figured it out. So you beat speed by slowing it down. Yeah, as crazy as that sounds. Katsuyama and his team went out and began selling and explaining what they had discovered to the big mutual funds, pension funds and institutional investors, people who had suspicions that they were being front-run but didn't know how. And nobody had really bothered or tried to figure this out until Brad Katsuyama came along It was in nobody's interest to, correct.

I spoke to dozens of investors, big investors, famous investors who, who said that, "When Brad Katsuyama came into my office and laid out to me how the market was rigged, my jaw hit the floor. I mean, I knew something was wrong. I just didn't know what it was and no one had told us. Part of those meetings led us to believe, "Holy cow, this is, this is really something. And some of the most famous names in the American stock market heard the pitch The Capital Group, T. Rowe Price, Fidelity, Vanguard, I mean, it, one after another.

He was in their offices. They said, "This man walked in. Why is he gonna know how the stock market operates? Was he able to show you how your orders were being front run? They had, they, they got the marker and the white board and started drawing maps and boxes, and wires and locations.

And yeah, we went through it in some detail. Did you find it interesting? Clients like Einhorn encouraged Brad and his team to do something bigger. That's when Katsuyama, a conformist even by Canadian standards, decided to do something radical. In , he quit his high-paying job as head trader at RBC and went off with some of his team to start their own exchange. You were making good money at Royal Bank of Canada? I guess, I guess everybody know that now? Why did you wanna go off and walk away from that job and start a stock exchange?

Meanwhile, computers are cool, calm and collected and can execute orders without any emotion. That is probably one of the biggest strengths behind automated trading. That along with the speed that the program can execute trades nanoseconds and the speed at which it can analyze what is going on in the market as a whole and with individual stocks. Narang, CEO of Tradeworx said, "Humans are not involved in the trading because humans are way too slow to trade on the kinds of opportunities that we're trying to capture.

We're trying to capture opportunities that exist for only fractions of a second. Automated trading systems typically require the use of software that is linked to a direct access broker , and any specific rules must be written in that platform's proprietary language. The TradeStation platform, for example, uses the EasyLanguage programming language. A complex TradeStation chart that you are supposed to use. TradeStation allows YOU to place, modify and execute trades with extraordinary speed and precision.

YOU have to do it though their trade desk or manually through your computer.! Wouldn't you prefer a software program that does not use proprietary language? Analytical tools for YOU to analyze with. Would you like to play chess or would you rather your computer do it for you? Wouldn't you prefer a program that does not use NinjaScript programming language?

This limits the brokers that you can use and is SO complicated! Ninja Trader only offers email support! Don't you want your computer playing that chess game? Only one stock can be traded at a time with the Auto trading feature. Another one of their website says, "You choose among the many stock exchange experts and the signals will be automatically transmitted on your account. More complex charts and quotes for you to pour over plus detailed charts and more info plus portfolio performance charts, They gave you 11 different so-called experts to choose from, but remember, these are human beings to and are subject to emotion.

That same websites says, " Zulutrade is not an infallible method to gain out of purse: As mentioned above, by the CEO of Tradeworx, the human's brain is not designed for trading and is nowhere as fast as a computer can be!

This is what is showing on the screen when the program announces a buy or sell notice and then YOU have to execute the trade manually! It will simply announce the trades that you are supposed to do and YOU must execute them manually.


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